AIR

This article first appeared on GuruFocus. - Total Sales: $918 million, up 24% year over year, including 11% organic growth. - Commercial Sales: Up 28%; represented 73% of total sales. - Government Sales: Up 14%; represented 27% of total sales. - Adjusted EBITDA Margin: Expanded 100 basis points to 12.7%; 13.3% excluding legacy commercial programs. - Adjusted Diluted EPS: $1.49 per share, up 38% year over year. - Adjusted Cash from Operations: Record first-quarter $57 million, or 48% of adjusted EBITDA. - Net Leverage: 1.81 times at quarter end. - Parts Supply Sales: $414.8 million, up 31% year over year; new parts distribution up 23% organically (commercial distribution +21% organic, government distribution +28% organic). - Parts Supply Adjusted EBITDA Margin: Expanded 150 basis points to 15.3%. - Repair, Engineering & Software Sales: $297.5 million, up 31% year over year. - Repair, Engineering & Software Adjusted EBITDA Margin: 11.9%, down 120 basis points year over year. - Government Solutions Sales: $138.8 million, up 4% year over year. - Government Solutions Adjusted EBITDA Margin: Expanded 460 basis points to 15.3%. - Legacy Commercial Programs: Liquidated $24 million of rotable assets, contributing approximately $5 million of margin; estimated run rate revenue of $35 million to $40 million per quarter. - Q2 Outlook: Total sales growth excluding legacy commercial programs of 14% to 16%; adjusted EBITDA margin excluding LCP of 13.0% to 13.4%. - Full-Year Outlook: Sales growth excluding LCP in the low teens. - MRO Holdings Acquisition: 65% controlling interest at implied enterprise value of approximately $4 billion; 10.7 times adjusted EBITDA multiple net of tax benefit synergies. - MRO Holdings Financials (Calendar 2026E): Approximately $1 billion adjusted sales, $285 million adjusted EBITDA (27% margin), and more than $200 million adjusted operating cash flow. - Pro Forma Combined Company: Approximately $4.3 billion annual sales and nearly $700 million adjusted EBITDA; adjusted EBITDA margin of 16% before synergies (up 400 basis points from roughly 12%). - Pro Forma Adjusted Operating Cash Flow: Increases from approximately $94 million to $272 million. - Expected Run Rate Cost Synergies: Approximately $75 million within three to four years. - New Medium-Term Adjusted EBITDA Margin Target: 19% to 20% over the next three to four years. - Transaction Financing: Approximately $1 billion of AAR equity (including ~$780 million to MRO Holdings shareholders at $135 per share and ~$230 million via PIPE) and approximately $2.1 billion of new debt. - Expected Net Leverage at Close: Approximately 3.6 times, including full run rate synergies; expected to decline to ~3 times within 24 months and return to 2 to 2.5 times target range over the medium term. - Warning! 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Release Date: September 29, 2026 For the complete transcript of the earnings call, please refer to the full earnings call transcript. - AAR Corp (NYSE:AIR) reported strong Q1 fiscal 2027 results with total sales up 24% year over year to $918 million, including 11% organic growth, driven by broad-based growth across all three segments. - Adjusted EBITDA margin expanded 100 basis points to 12.7%, and excluding legacy commercial programs, margin was 13.3%, already within the three-year target range set at the Investor Day. - The acquisition of a 65% controlling interest in MRO Holdings significantly advances AAR Corp (NYSE:AIR)'s strategy to become a leading aviation aftermarket platform, creating substantial new avenues for growth across parts, repair, and software. - The transaction is expected to be accretive to adjusted EPS in the first full fiscal year following close, with pro forma revenue increasing by approximately 30% and adjusted EBITDA margin improving from roughly 12% to 16% before synergies. - AAR Corp (NYSE:AIR) expects to generate approximately $75 million of run rate cost synergies within the next three to four years, and the combined business is projected to have strong cash generation, supporting deleveraging and financial flexibility. - The Repair, Engineering & Software segment experienced a 120 basis point decline in adjusted EBITDA margin to 11.9%, due to the expected short-term dilution from the HAECO Americas integration. - The HAECO Americas integration is ongoing and is expected to be dilutive to segment margins until its completion by the fourth quarter of the fiscal year, with the exit of the Indianapolis facility being a key step. - The MRO Holdings acquisition will significantly increase AAR Corp (NYSE:AIR)'s net leverage to approximately 3.6 times at closing, which is above the target range of 2 to 2.5 times, requiring a clear path to deleverage over the medium term. - The transaction involves the issuance of approximately $1 billion of equity, including shares to MRO Holdings shareholders and a pipe transaction, which could dilute existing shareholders and impact the share count. - There is potential integration risk and management bandwidth concerns given AAR Corp (NYSE:AIR)'s recent acquisition activity, though management believes the MRO Holdings deal is different from prior turnarounds and is confident in its ability to integrate. Q: John, to summarize the main rationale for the deal, would you say with these 3,000 aircraft parts that it mainly comes down to the network effect and you guys becoming a one-stop shop for airlines in that it's not only now cross-selling the distribution, but it's also crossing the component repairs? A: John Holmes, Chairman, President and CEO: You're absolutely right. It's a network effect. We're excited about the opportunities to cross-sell component MRO. This gives us visibility in demand and aircraft trends that are incredibly valuable to our position as a distributor. Heavy maintenance provides a window into the demand channel for parts, and the software business benefits as we scale and collect more data. All these things work together. Q: John, you were already one of the industry leaders for heavy maintenance. Does this acquisition make AAR more a global player in the market? Could you begin serving European airlines or even some of your Asian customers with the new footprint? A: John Holmes, Chairman, President and CEO: Absolutely. This opens up the world market to us. AAR today is a narrow-body focused operation. With MRO Holdings, they're doing wide-body work today, and we see opportunities to expand that. A number of our US customers have performed their wide-body maintenance overseas, particularly in Asia, and there's a desire to bring that work back to this side of the world. We also see an opportunity to attract narrow-body work from Europe over time given the cost profile. This is really the opportunity to create a global heavy maintenance provider. Q: This transaction transforms your margin profile of your business with 16% pro forma and 19% to 20% in three to four years. What are the major puts and takes now that the business will become almost 50% MRO? A: John Holmes, Chairman, President and CEO: The margin profile of MRO Holdings is highly attractive. We get to that 19% to 20% by realizing synergies from SG&A savings, volume discounts on procurement, and sharing best practices and proprietary systems. What we're not factoring in are the network effects from additional revenue capture in components through cross-selling, additional OEM distribution partners, and acceleration in the software business. The cost synergies get us to that 19% to 20% over time, but the network effect can be very powerful beyond that. Q: Maybe if I could just follow up on Repair and Engineering, Software margins in the quarter, down 100 bps. Can you talk about the puts and takes there? What's going on with the HAECO acquisition and how we should think about adjusted EBITDA margins for the business unit into 2027? A: John Holmes, Chairman, President and CEO: That step down is due to the expected HAECO dilution. That is a meaningful restructuring effort where we bought a business that was significantly underperforming in terms of margin. The next big step is the full exit of our Indianapolis facility, our highest cost facility. We will exit it by the end of this calendar year. Once we complete that exit, you'll start to see the margin trend back up towards where it was before. We're on track to achieve that by the end of this fiscal year. Q: How did you end up getting this asset for such a reasonable multiple? And on labor arbitrage, do we have to worry about wages creeping up? A: John Holmes, Chairman, President and CEO: We've known the Kriete family for many years. It's an amazing business with a significant labor cost advantage, which is a key contributor to their margin profile. They've got great systems and industry-leading turnaround times. With respect to wage pressure, we don't see that in these markets. They've been there for decades, and we don't see any meaningful wage differential in the future that would impact that margin profile. Dylan Wolin, CFO: Transaction structure was an important part of the equation. It was important to the sellers to continue to participate in value creation through their stake as well as ownership in AAR going forward. Q: You did four acquisitions in fiscal '26. This is AAR's largest ever acquisition. Is there any concern about trying to digest all these deals at once? Should we assume the path going forward is delevering? A: John Holmes, Chairman, President and CEO: I wouldn't conflate the value of the transaction with the integration difficulty. HAECO was a big turnaround project with a lot of integration effort. MRO Holdings is very different. This is a business performing exceptionally well. This is about bringing two high-performing companies together and growing from here. We're very disciplined in terms of financial capital allocation and what we can take on operationally, and we feel very comfortable with the spacing here. Q: You mentioned you can do a C check at your hangars in the high 20s of days. What are the turnaround times at MRO Holdings right now? Can you get their turnaround times in line with AAR's? A: John Holmes, Chairman, President and CEO: MRO Holdings also performs exceptionally well in terms of their turnaround times. The maintenance profile of the aircraft they work on can be different. They are in a lower-cost labor environment, so they will see more labor-intensive work. It's a little bit of apples and oranges. We're best-in-class for the type of maintenance work that we do, and they are best-in-class for the type of maintenance work that they do. There will be opportunities to share best practices across both organizations. Q: The full-year guide kind of implies that growth decelerates to roughly 8% in the back half of fiscal '27. Is that just conservatism, or are you seeing any changes in demand signals from customers? A: Dylan Wolin, CFO: I would not think about a deceleration generally in growth or demand. We are continuing to see strong demand that's been reflected in our bookings and what we're hearing from our customers. John Holmes, Chairman, President and CEO: The guidance we just provided for Q2 actually implies an increase in organic growth from Q1 to Q2. We are not seeing a slowdown anywhere in our bookings and parts. More importantly, we're not hearing from any of our customers that we should expect to slow down on the maintenance side. Q: Can you discuss the transaction structure and financing in more detail? A: Dylan Wolin, CFO: We are acquiring an initial 65% controlling interest in MRO Holdings at an implied enterprise value of approximately $4 billion, representing a 10.7 times multiple on adjusted EBITDA, net For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Image source: The Motley Fool. Sept. 29, 2026 - Vice President of Investor Relations - Christopher Tillett - Chairman, President and Chief Executive Officer - John Holmes - Chief Financial Officer - Dylan Wolin Operator: Good day, and thank you for standing by. Welcome to the AAR Corp. First Quarter Fiscal Year 2027 Business Update Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Chris Tillett, Vice President of Investor Relations. Please go ahead. Christopher Tillett: Good morning, everyone, and welcome to the business update call covering AAR's fiscal year 2027 first quarter earnings and the announced acquisition of a controlling interest in MRO Holdings. We're joined today by John Holmes, Chairman, President and Chief Executive Officer; and Dylan Wolin, Chief Financial Officer. The presentation we are sharing today as part of this webcast can be found under the Investors section on our corporate website. Comments made during the call will include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from the forward-looking statements. Accordingly, these statements are no guarantee of future performance. These risks and uncertainties are discussed in the company's earnings release and the Risk Factors section of the company's Annual Report on Form 10-K for the fiscal year ended May 31, 2026. In providing the forward-looking statements, the company assumes no obligation to provide updates to reflect future circumstances or anticipated or unanticipated events. Certain non-GAAP financial information will be discussed during the call today, and reconciliations of these non-GAAP measures to the most comparable GAAP measures are set forth in the company's earnings release and slides. At this time, I would like to turn the call over to John Holmes. John Holmes: Thank you, Chris, and good morning, everyone. I'm very excited to talk to you today about an important development for AAR. Alongside our earnings release yesterday afternoon, we announced an agreement to acquire a 65% controlling interest in MRO Holdings, a leading airframe heavy maintenance provider with a significant footprint across the Americas and a blue-chip U.S. customer base. This is a combination we have been talking about with MRO Holdings in various ways for about 8 years. The transaction marks a major milestone in AAR's evolution and in building out our parts, repair and software aftermarket platform. As a result of the highly strategic combination of AAR's aftermarket solutions and MRO Holdings' footprint, we will achieve a scale that accelerates the growth across all of our activities. It is a significant step in our executing our strategy, and it will meaningfully strengthen AAR's financial position through higher margins and stronger, more consistent cash flow. Before I discuss the transaction in more detail, I want to review our fiscal first quarter 2027 results. We had a strong start to the year with continued above-market growth, margin expansion and record first quarter cash flow. These results reflect the continued strength of demand across our businesses and the progress we have made against the strategy we have been executing over the last several years. Turning to Slide 3. Total sales were $918 million, up 24% year-over-year, including 11% organic growth. Importantly, growth was broad-based with each of our 3 key segments contributing to the increase. Sales to commercial customers were up 28%, while sales to government customers increased 14%. Commercial customers represented 73% of total sales in the quarter with government customers representing the remaining 27%. Adjusted EBITDA margin expanded 100 basis points to 12.7%. Excluding Legacy Commercial Programs, adjusted EBITDA margin was 13.3%, already within the 3-year target range that we established at our Investor Day a few months ago in May. Margin expansion was driven by growth in Parts Supply and the continued mix shift towards newer, higher-margin programs in Government Solutions. In Repair, Engineering and Software, we continue to see growth and margin improvement in component MRO, partially offset by the expected short-term dilution from the HAECO Americas integration. We continue to expect that integration to be complete by the first -- fourth quarter of this fiscal year. Adjusted diluted EPS increased 38% year-over-year to $1.49 per share, reflecting our strong operating performance. We also delivered record first quarter cash flow with adjusted cash from operations of $57 million, or 48% of adjusted EBITDA, driven by strong operating performance and improved working capital management. The strong cash generation helped to reduce our net leverage to 1.81x by the end of the quarter. With that, I'll turn the call over to Dylan to discuss the segments and our updated outlook, and then I'll come back to walk through the MRO Holdings transaction in more detail. Dylan Wolin: Thanks, John. Turning to the segment results on Slide 4. Parts Supply had another strong quarter with sales increasing 31% year-over-year to $414.8 million. New parts distribution continued to deliver above-market growth, increasing 23% organically with commercial distribution up 21% organically and government distribution up 28% organically. Adjusted EBITDA margin expanded 150 basis points to 15.3%, driven by improved performance in new serviceable material and continued growth in distribution. In Repair, Engineering and Software, sales increased 31% to $297.5 million, reflecting the year-over-year impact of the HAECO Americas acquisition as well as organic growth across Airframe MRO, Component MRO and Software. Adjusted EBITDA margin was 11.9%, down 120 basis points from the prior year. As expected, the ongoing HAECO Americas integration was dilutive to the segment while we continue to see growth and margin improvement in Component MRO. In Government Solutions, sales increased 4% to $138.8 million, while adjusted EBITDA margin expanded 460 basis points to 15.3%. Growth in Mobility Systems and in the newer higher-margin government programs more than offset the decline in WASS activity. Importantly, that mix shift also drove the significant improvement in segment margins during the quarter. Finally, in Legacy Commercial Programs, we liquidated $24 million of rotable assets, which contributed approximately $5 million of margin in the quarter. We estimate run rate revenue in that segment today is $35 million to $40 million per quarter, and you can expect that we will continue to pursue these rotable asset sales as opportunities become available. Turning to our outlook on Slide 5. For the second quarter, we expect total sales growth, excluding Legacy Commercial Programs, of 14% to 16% and adjusted EBITDA margin, also excluding LCP, of 13.0% to 13.4%. This outlook implies a higher level of organic growth, excluding LCP, in the second quarter than what we delivered in the first with similar margin levels. I would also note that we will close the PIPE associated with the MRO Holdings transaction this week and issued 2.2 million shares, which will be reflected in our Q2 share count for approximately 2/3 of the quarter and associated interest savings from the proceeds. For the full year, we are increasing our sales outlook and now expect growth, excluding LCP, in the low teens. This reflects our strong first quarter performance and our continued confidence in demand environment, supported by durable passenger volumes and a customer list that includes some of the world's largest airlines. Importantly, both our second quarter and full year fiscal 2027 outlooks exclude any impact from the MRO Holdings acquisition. With that, I will turn the call back to John to walk through the transaction in more detail. John Holmes: Thank you, Dylan. Turning to Slide 6. I want to start with the key strategic and financial takeaways from the transaction. First, we have agreed to acquire a 65% controlling interest in MRO Holdings, a leading provider of airframe heavy maintenance with facilities across Central and South America and the United States for an implied enterprise value of $4 billion. Second, the transaction significantly advances our strategy to become the leading aviation aftermarket platform, creating substantial avenues for growth across parts, repair and software. Third, the combination represents a step change in AAR's financial profile, significantly increasing our scale while enhancing margins and cash flow. And fourth, we will apply the same disciplined approach to M&A that has guided our prior acquisitions to integration and deleveraging. We see compelling synergy opportunities across our platform, and the strong cash generation of the combined business will support our path back towards our target leverage range within the medium term. Turning to Slide 7. By combining AAR's capabilities with MRO Holdings heavy maintenance footprint, we are adding a very well-respected Airframe MRO operation and achieving significantly greater scale across our broader parts, repair and software platform. We will approach market as one company, and this scale will create tremendous advantages for our customers as we can offer a broad range of maintenance solutions for more aircraft types in strategic geographies. The deal also creates advantages for the rest of AAR. First, by expanding our Airframe MRO presence, we have an opportunity to drive additional volume into our high-margin Component MRO facilities and offer customers a single, more comprehensive repair solution. Second, the combination strengthens our position with existing OEM distribution partners and create new opportunities to win additional distribution agreements. With combined business servicing nearly 3,000 aircraft annually, we will have even greater visibility into parts demand and the needs of airline customers across multiple fleet types. That market insight and direct sales channel is a significant competitive advantage in building and expanding long-term OEM distribution relationships. Third, the expanded footprint creates an opportunity to capture substantially more repair and maintenance data that can enhance our software solutions and help us continue developing tools that address our customers' most critical operational needs. Importantly, the structure of the transaction also creates long-term alignment between AAR and MRO Holdings. The sellers bring decades of experience operating in strategically important markets and the continued ownership provides continuity while AAR continues to preserve financial flexibility. The financial benefits are equally compelling. On a pro forma basis, the transaction increases AAR's revenue by approximately 30% and improves adjusted EBITDA margin from roughly 12% to 16% before synergies. It also meaningfully enhances our cash conversion profile, and we expect the transaction to be accretive to adjusted EPS in the first full fiscal year following close. In addition, we expect to generate approximately $75 million of run rate cost synergies within the next 3 to 4 years, consisting of savings in procurement and SG&A as well as savings generated by the sharing of best practices and systems across the combined footprint. And critically, that $75 million does not include the longer-term revenue opportunities we see from the combination, including growth in wide-body maintenance, increased capture of European and Middle Eastern fleets and service in the Americas and cross-selling opportunities over our platform, which I will discuss now. On Slide 8, I want to spend a moment on why we believe this combination makes the entire AAR platform stronger. Parts, repair and software are highly complementary businesses. Each one creates opportunities for the others. In parts, our position in distribution gives us deep relationship with OEMs and visibility into parts demand across the aftermarket. Extending our Airframe MRO footprint puts AAR closer to the point of consumption for a greater number of aircraft, strengthening our market insight and value proposition to existing and prospective OEM partners. In repair, Airframe MRO is one of those visible activities we perform for airline customers. Increasing the number of aircraft flowing through our network creates opportunities to capture additional high-margin component MRO work, while also providing valuable insight into parts requirements and maintenance trends. In software, thousands of parts buyers and repair planners use our software every day. The addition of MRO Holdings gives us access to an even broader pool of maintenance and repair data, which can help us enhance our software solutions on their own, but also data available across our platform will help us perform maintenance more efficiently and allow us to provide our OEM partners more insight into their distribution channels. That is the self-reinforcing nature of our platform. Part supports repair, repair supports parts, and the data generated across both markets makes our software business stronger. With the addition of the MRO Holdings, we are materially increasing the scale of that ecosystem, strengthening our leadership in heavy maintenance while creating additional opportunities for growth across the entire company. Turning to Slide 9. I want to provide some more context on why heavy maintenance is such an important part of the aviation aftermarket. Heavy maintenance is a recurring mission-critical service that aircraft require throughout their useful lives. These extensive events are time-based, meaning they often happen regardless of how much an aircraft has flown and involve inspection, repair, overhaul and modifications. Because the work is required regardless of utilization, it provides a durable and recurring source of demand. It is also a highly specialized business with barriers to entry. Heavy maintenance requires skilled labor, scaled hangar capacity and the system to return aircraft to service quickly and efficiently. AAR has built a strong position in this market through our operating model, digital and technical capabilities and industry-leading turnaround times and so has MRO Holdings. Just as important, heavy maintenance puts us at a critical point in the customer relationship. It provides visibility into the repair needs, parts requirements and maintenance activity of the aircraft we service, creating opportunities that extend beyond Airframe MRO and into our broader platform. And the long-term demand environment remains very attractive. The global fleet is expected to grow significantly over the next decade, while stronger passenger demand and the existing installed fleet continue to support the need for heavy maintenance. Against that backdrop, adding MRO Holdings meaningfully expands our position in this attractive, strategically important market. Slide 10. Turning to Slide 10. MRO Holdings is a scaled, highly differentiated heavy maintenance provider with 5 locations across El Salvador, Mexico, Colombia and the United States, and room to expand further in each location as the demand requires. For example, MRO Holdings recently opened its seventh hangar in El Salvador, which is actually the largest hangar in the world. The business has comprehensive capabilities across narrow-body and select wide-body aircraft and serves a blue-chip customer base that includes some of the largest airlines in the Americas. Approximately 90% of its sales are to U.S. customers, demonstrating the important role these strategically located facilities play in supporting the U.S. aviation market. MRO Holdings also has an impressive track record of growth and profitability. Over the last 12 years, sales have had double-digit compounded annual growth rate, while adjusted EBITDA has grown even faster. The strength of these results is also a testament to the reputation for quality and safety. For calendar 2026, MRO is expected to generate approximately $1 billion of adjusted sales and $285 million of adjusted EBITDA on a pro forma basis, representing 27% adjusted EBITDA margin. That profitability translates into significant cash flow. The business is expected to generate more than $200 million of adjusted operating cash flow in calendar 2026. Taken together, MRO Holdings brings AAR significant scale, attractive margins, strong cash generation and a strategically important footprint serving many of the world's leading airlines. Now on Slide 11, you can see the scale and geographic reach of the combined airframe network. Together, AAR and MRO Holdings will create the largest MRO operation in the world, expanding our network from 7 to 12 facilities across 5 countries with approximately 19 million service hours and nearly 3,000 aircraft maintained each year. Sorry, I get choked up every time I say that 3,000 number. But the strategic value goes beyond scale. This footprint gives us greater flexibility to serve customers across a broader range of aircraft types and geographies and adds cost-advantaged options to our hangar network, and it creates a more open runway for future capacity additions. For example, MRO Holdings already has plans underway to add an additional eighth hangar to its location in El Salvador. We believe the combination of scale, flexibility and additional capacity creates a highly differentiated offering for our customers and position us well to capture continued growth. Turning to Slide 12. The transaction immediately transforms AAR's financial profile. On a combined basis, AAR will have approximately $4.3 billion in annual sales and nearly $700 million of adjusted EBITDA. Our adjusted EBITDA margin increases by 400 basis points from roughly 12% to 16% before synergies. The transaction also enhances our cash generation. Pro forma adjusted operating cash flow increases from approximately $94 million to $272 million, reflecting the attractive working capital profile of the MRO Holdings business. That stronger cash generation will be an important driver of our deleveraging following close and help us to preserve financial flexibility over time. Given the significantly improved earnings profile of the combined business, we are also establishing new medium-term adjusted EBITDA margin targets. At our Investor Day back in May, we laid out a 3-year target of 13% to 14% plus, excluding Legacy Commercial Programs. Following the close of the trends -- of this acquisition and including the cost synergies we have identified, we now expect adjusted EBITDA margins to reach 19% to 20% over the next 3 to 4 years. Notably, that target does not include the longer-term revenue synergies we see from the combination, including the cross-selling and broader growth opportunities I discussed earlier. Turning to Slide 13. We see significant opportunities to continue growing in a fragmented repair market. Today, the addressable market across component maintenance, heavy maintenance and modifications is more than $50 billion, providing substantial room for continued growth across our repair activities, particularly in the Component MRO space. The combination of those market dynamics, our industry-leading capabilities and significantly expanded scale of our combined platform puts AAR in an excellent position to capture more work over time. With that, I'll turn the call back over to Dylan to discuss the transaction structure and financing in more detail. Dylan Wolin: Thanks, John. Turning to Slide 14. I'll walk through some of the key transaction terms. We are acquiring an initial 65% controlling interest in MRO Holdings and an implied enterprise value of approximately $4 billion, representing a 10.7x multiple on adjusted EBITDA, net of the tax benefit and synergies. The acquisition will be financed through a combination of debt and equity. We will issue approximately $1 billion of AAR equity, including approximately $780 million issued to the current MRO Holdings shareholders at $135 per share price and approximately $230 million through the PIPE transaction. Collectively, the current MRO Holdings shareholders will hold approximately 12% of AAR shares. We also expect to raise approximately $2.1 billion of new debt with fully committed financing in place to support the transaction. At closing, substantially, all existing MRO Holdings' debt will be repaid, and AAR will provide its intercompany loan to MRO Holdings. For the first 2 years following close, 100% of the excess cash flow from MRO Holdings will be used to repay that loan, supporting our deleveraging objectives. The transaction also provides AAR with a clear path to increase our ownership over time. We'll have the option to acquire an additional 5% at any time as well as the remaining 30% in equal tranches on the second, third and fourth anniversaries of the initial closing. The exercise price for those future purchases will be based on AAR's then current LTM EBITDA multiple subject to the floor and cap outlined on the slide. AAR will control the MRO Holdings Board. We expect to close the transaction in our fiscal third quarter ending February 2027, subject to customary regulatory approvals. Following close, MRO Holdings will be fully consolidated into the AAR financial results. Turning to Slide 15. We expect net leverage to be approximately 3.6x at closing, including the full amount of the run rate synergies. We have a clear path to reduce that leverage through the strong cash generation of the combined business and the receipt of all MRO Holdings cash flow during the first 2 years following close in order to pay down the intercompany loan, as I described in the previous slide. We expect net leverage to decline to approximately 3x on a realized synergies basis within 24 months following close and to return to our 2 to 2.5x target range over the medium term, including the assumed exercise of the options. Importantly, we expect to maintain a BB category credit rating profile following close. Overall, we believe the financing structure provides an appropriate balance between funding the transaction, rapidly reducing leverage and preserving financial flexibility. With that, I'll turn it back to John. John Holmes: Great. Thank you, Dylan. I'll close by coming back to our strategy. Our ambition is to build the leading aviation aftermarket platform, and we believe this transaction represents a major step forward in achieving that vision. By bringing AAR and MRO Holdings together, we are adding significant scale to a mission-critical part of the aftermarket and in doing so, strengthening our entire parts, repair and software platform. The opportunity creates more -- the combination creates more opportunities to serve our customers, expand our avenues for above-market growth, meaningfully increases our margins and cash generation and creates an even stronger foundation for the future. And what makes this combination particularly powerful is that the business reinforce one another. Part strengthens repair, repair strengthens parts and software both contributes to and benefits from the data and insights generated across the platform. As we increase scale, we believe that model becomes even more valuable. We are incredibly excited about what we are building and the opportunities ahead as demand for our services remains extremely strong. I want to thank the teams at AAR and MRO Holdings whose hard work has brought us to this point, and we look forward to bringing these 2 organizations together. And I want to particularly congratulate the AAR team on such a strong start to our fiscal year 2027. With that, I'll turn it back over to the operator for questions. Operator: [Operator Instructions] Our first question comes from the line of Louie DiPalma with William Blair. Louie Dipalma: Congrats on the proposed deal and another strong quarter. John, to summarize the main rationale for the deal, I know you got choked up when you were describing the 3,000 aircraft parked in your hangars, but would you say with these 3,000 aircraft parked that it mainly comes down to the network effect and you guys becoming a one-stop shop for airlines, in that it's not only now cross-selling the distribution, but it's also cross-selling the component repairs. And so for your existing customers and your new airline customers, it can basically just be a one-stop shop, so it's a lot more time efficient versus the airlines flying to many different places to receive these services and new parts? John Holmes: Thanks, Louie. Yes, it is exciting to think about the scale of the operation as we have 3,000 aircraft or approximately 3,000 aircraft moving through our hangars each year. That's a lot of volume and as we mentioned, it would be the largest maintenance operation in the world. And you're absolutely right. I mean you definitely would think about it as a network effect. We're excited about the opportunities to cross-sell certainly Component MRO. This gives us visibility in demand and aircraft trends that are incredibly valuable to our position as a distributor. We are not just a stocking distributor. Our goal is to help our OEM partners take market share and giving them a clear view into the demand channel for the parts that they manufacture and sell is important, and heavy maintenance provides a window into that channel. And certainly, the software business, as we scale and collect more data, it allows us to offer more compelling software offerings, which that business continues to grow very, very nicely. And then the software insights, the data that is collected from the broader software offering helps inform what parts we want to have on the shelves, what OEMs, we think can make great distribution partners and what repairs we decide to develop. So you're absolutely right. All these things work together. Louie Dipalma: Great. And John, you were already one of the industry leaders for heavy maintenance. Does this acquisition make AAR more a global player in the market? I think, if you take the 3,000 aircraft and divide it by the 29,000 total commercial aircraft, it's roughly 12% of the market. But could you begin like serving European airlines or even some of your Asian customers with the new footprint? John Holmes: Yes, absolutely. And I'm glad you went there. I mean this really opens up a much -- the world market to us in terms of heavy maintenance in a few different ways. First of all, we are -- AAR today is a narrow-body focused operation. With the capability that comes online with MRO Holdings, we -- they're doing wide-body work today, and we see opportunities to expand that. A number of our U.S. customers performed their wide-body maintenance overseas, particularly in Asia, and there's a desire for many of those customers to bring that wide-body work back to this side of the world, and MRO Holdings has the capacity to do that work. And so we would look to expand meaningfully into wide-body maintenance in their facilities. Furthermore, if you think of the cost profile that we can offer relative to the cost of heavy maintenance in European markets, we see an opportunity to attract not just widebody, but actually narrow body work over from Europe over time. So this is really the opportunity to create a global heavy maintenance provider, given the combination of our best practices, their best practices and the strategically advantaged locations. Operator: Our next question comes from the line of Sheila Kahyaoglu with Jefferies. Sheila Kahyaoglu: Congrats on a great quarter and a very exciting deal. Maybe just to go from the revenue synergy potential and expansion to margins. John, this transaction transforms your margin profile of your business with 16% pro forma and 19% to 20% in 3 to 4 years. I guess, what are the major puts and takes now that the business will become almost 50% MRO as you -- and how you think back to your Investor Day targets set in May? John Holmes: Certainly, as you pointed out, the margin profile of MRO Holdings is highly attractive. It moves the combined total up. We get to that 19% to 20% by realizing those synergies. Those synergies come from SG&A savings. They come from volume discounts on procurement because we're buying a lot of parts to support our maintenance operations. They're buying a lot of parts to support their maintenance operation. There's great savings by improved sourcing across the two. And then ultimately, as I mentioned, we have highly differentiated systems, proprietary systems at AAR that have allowed us to achieve industry-leading margins in our business here as well as industry-leading turnaround times, and they've got proprietary systems in their operations, and we intend to deploy -- share best practices, which we expect will improve the margin profile of both their business and our business even further. That's the heavy maintenance. What we're not factoring in, even in the targets that we just gave, are the network effects that we see from additional revenue capture, additional revenue capture in components through cross-selling. We see very clear connection there that's not factored into the model right now. We also see significant appeal to additional OEM partners for distribution. This scale, this visibility, this data that we're collecting is incredibly valuable to OEMs and our pitch to them as an exclusive distribution partner. Growth in that business as a result of this acquisition is not factored into that model. And additionally, we think about the software business. The data that we collect, the improvements we can make -- further improvements we can make to the software offering, given we've got -- we sell MRO software, and now we've got a much greater window to the MRO world can help make that software solution set even more exciting and growth there. I mean, obviously, we're counting on growth there, but the potential acceleration of that growth isn't factored into the model either. So it's exciting on its own. The cost synergies get us to that 19% to 20% over time. But the network effect, we think can be very powerful beyond that. Sheila Kahyaoglu: That's super helpful. And then maybe if I could just follow up on Repair ,Engineering and Software margins in the quarter, down 100 bps. Can you talk about the puts and takes there? What's going on with the HAECO acquisition and how we should think about adjusted EBITDA margins to the business unit into 2027? John Holmes: Yes, that step down is due to the expected HAECO dilution. 2 quarters ago, you saw the most meaningful impact from the dilution of the HAECO acquisition. And just to remind everybody, I mean, that is a meaningful restructuring effort where we bought a business that was significantly underperforming in terms of margin. We're restructuring the business. We're taking the revenue down. We're executing -- exiting work that was not profitable and bringing in contracts that make a lot more sense. And the goal was to get the HAECO operation EBITDA wise to be margin consistent with the other facilities that we have in North America. So you saw the biggest impact from that exercise 2 quarters ago. We saw an improvement from that low point last quarter. This quarter was relatively even with last quarter in terms of the dilution. And that's because the next big step is the full exit of our Indianapolis facility. Just as a reminder, that's our highest cost facility. We will exit it by the end of this calendar year. And once we complete that exit, you'll start to see the margin trend back up towards where it was before we complete takeout. And we're on track to achieve that by the end of this fiscal year. Operator: Our next question comes from the line of Michael Ciarmoli with Guggenheim Securities. Michael Ciarmoli: Congrats on the results and the transaction, pretty exciting stuff. John, just to maybe think about the margins that this business is generating. I mean sort of best-in-class when we think about some of the other aerospace aftermarket companies, and I'm just curious how you ended up getting this asset for such a reasonable multiple? And then just the other one I had, the labor difference in labor arbitrage, I mean, I guess, I could go 1 of 2 ways. I mean, I think Louie called out how much scale and breadth of presence you have, which kind of begs the question, maybe you can get even more pricing and have some pricing power to kind of drive that one-stop shop and convenience for the airlines. And on the flip side, just if we're trying to think about from a modeling standpoint, do we have to worry any bit about those kind of wages maybe creeping up? Can you offset kind of price increases and maybe that goes to what I was just asking about the pricing power? John Holmes: Thanks, Mike. Great set of questions. First of all, I would say -- I'd kind of go back to what I said at the beginning. I mean, we've got tremendous respect for the Kriete family and the others that have built this incredible, as you said, best-in-class MRO operation down south. And we've known them now for many, many years. It's an amazing business, and they have a really impressive reputation. And yes, they do have a significant labor cost advantage, which is a key contributor to their margin profile. But similar to us, they've got great systems. They turn aircraft very quickly with industry-leading turnaround time. And that performance, safety and quality, et cetera, is what has allowed them to grow. And since we've gotten to know them, they've always had an attractive margin profile, and we expect that to continue. So with respect to different wage pressure, et cetera, we don't see that in these markets. They've been there for decades. We've obviously spent a lot of time talking to them and understanding those dynamics. And so we don't see any sort of meaningful wage differential in the future that would impact that margin profile. Dylan Wolin: Mike, maybe I'll just add as it relates to your question on value. I think transaction structure was an important part of the overall equation. It was important to the sellers to continue to participate here in value creation through their stake as well as the ownership in AAR going forward. John Holmes: Yes. I'm glad you said that, Dylan. They were not for sale. We approached them. And it took us some time to convince them that they've got a great business that's been performing really well, and it took us some time to convince them. But as Dylan pointed out, they're retaining the 35% stake, becoming shareholders of AAR and participating in the combined upside was a big part of the reason they agreed to do the deal. Operator: [Operator Instructions] Our next question comes from the line of Scott Mikus with Melius Research. Scott Mikus: Congrats on the deal. John, you did 4 acquisitions in fiscal '26. This is AAR's largest ever acquisition. I'm just -- is there any concern about trying to digest all these deals at once? Do you feel like the management bandwidth might be a little bit stretched. And Dylan, you talked about how the financing structure provides the company with financial flexibility. Should we just assume the path going forward now is delevering? And then deals could pop up in the medium term once you're back in your target leverage range? John Holmes: Yes. Great set of questions, and glad you asked about the bandwidth. Yes, we've been very active in the M&A world over the last several years, and the deals have gone very well. And the fact that we've performed so well on the transactions we've done over the last 4 years gave us the confidence to go and pursue something like this. But I wouldn't necessarily conflate the value of the transaction with the integration difficulty. HAECO, for example, that's a big turnaround project. That's a lot of intensive effort moving sites around, restructuring operations, massive deployment of systems, restructuring customer contracts, et cetera. That was a real effort, small purchase price, but a lot of integration effort. MRO Holdings is very different. I mean, this is a business that is performing exceptionally well. This is about bringing 2 high-performing companies together and growing from here. And so we're very confident in our ability to do that. The other thing I would point out is even though we've done a number of acquisitions, they've been in different areas of AAR. Obviously, you've seen acquisitions in parts, you've seen acquisitions in software and now in repair. And we are very disciplined in terms of the financial capital allocation and a disciplined approach to capital allocation here, but we're certainly also very disciplined in terms of what we can take on operationally, and we feel very comfortable with the spacing here and the deal that we just announced. Scott Mikus: Okay. Got it. And then you mentioned the turnaround times previously. I think at a recent conference, you mentioned you guys can do a C-check at your hangars in the high 20s of days. I'm just curious what are the turnaround times at MRO Holdings right now? And then as you implement your paperless hangar initiatives and their hangars, can you also get their turnaround times in line with AAR's turnaround times? John Holmes: Yes. Yes, you're correct. And we're very proud of the industry-leading turnaround times that we've built. MRO Holdings also performs exceptionally well in terms of their turnaround times. I think it's important to note that actually, the maintenance profile of the aircraft they work on can be different than the maintenance profile of the aircraft we work on. So for example, they are in a lower-cost labor environment. And therefore, they will see more labor-intensive work as a result of that. And so it's a little bit of apples and oranges in terms of comparing to our turnaround times and their turnaround times. So I would look at us as we're best-in-class for the type of maintenance work that we do, and they are best-in-class for the type of maintenance work that they do. And there, as you mentioned, will be opportunities to share best practices across both organizations and make each other stronger. Scott Mikus: Okay. And then one last question for Dylan. The F1Q revenue growth was very good. You provided the outlook for the second quarter. The full year guide kind of implies that growth decelerates to roughly 8% in the back half of fiscal '27. Is that kind of just conservatism? Or are you seeing any changes in demand signals from customers? Dylan Wolin: Yes, Scott, I would not think about a deceleration generally in growth or demand. We are continuing to see strong demand that's been reflected in our bookings and what we're hearing from our customers. So yes, I don't think you're hearing anything that would suggest we're decelerating. John Holmes: Yes. And if you look at the guidance that we just provided for Q2, it actually implies an increase in organic growth from Q1 to Q2. And obviously, we've just raised the guide for the full year. And just on that point, just to amplify what Dylan said, we are not seeing a slowdown anywhere in our bookings in parts and more importantly, we're not hearing from any of our customers that we should expect to slow down on the maintenance side. So we continue to feel very good about the demand environment that we're in. Operator: And I'm currently showing no further questions at this time. I'd now like to hand the call back over to John Holmes for closing remarks. John Holmes: All right, everybody. We really appreciate the time and flexibility given the change in the conference call time here, and we look forward to providing another update from next quarter. Thank you. Operator: This concludes today's conference. Thank you for your participation. You may now disconnect. 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While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability. The Motley Fool has positions in and recommends Aar. The Motley Fool has a disclosure policy. AAR (AIR) Q1 2027 Earnings Call Transcript was originally published by The Motley Fool

AAR's third-quarter results were met with a negative market reaction despite the company outperforming Wall Street's revenue and profit expectations. Management pointed to strong demand across its commercial and government segments, with sales growth largely attributable to both organic expansion and recent acquisitions. CEO John Holmes highlighted the company's "broad-based growth in each of our three key segments," and noted that margins were helped by a shift toward higher-margin government programs and robust parts supply performance. Still, the integration of the HAECO Americas acquisition weighed on certain segment margins, and management acknowledged ongoing restructuring efforts as a factor. Is now the time to buy AIR? Find out in our full research report (it's free). - Revenue: $918 million vs analyst estimates of $879.6 million (24.1% year-on-year growth, 4.4% beat) - Adjusted EPS: $1.49 vs analyst estimates of $1.30 (14.9% beat) - Adjusted EBITDA: $116.5 million vs analyst estimates of $107.2 million (12.7% margin, 8.7% beat) - Revenue Guidance for Q4 CY2026 is $914.6 million at the midpoint, above analyst estimates of $891.4 million - Operating Margin: 7.9%, in line with the same quarter last year - Market Capitalization: $4.24 billion While we enjoy listening to the management's commentary, our favorite part of earnings calls is the analyst questions. Those are unscripted and can often highlight topics that management teams would rather avoid or topics where the answer is complicated. Here is what has caught our attention. - Louie DiPalma (William Blair): Asked whether the MRO Holdings deal enables AAR to become a one-stop shop for airlines. CEO John Holmes explained that the network effect and cross-selling opportunities across parts, repair, and software are central to the strategy. - Louie DiPalma (William Blair): Inquired about AAR's ability to serve international markets, including Europe and Asia. Holmes noted the expanded global reach, particularly in wide-body maintenance, and highlighted opportunities to attract overseas work. - Sheila Kahyaoglu (Jefferies): Queried about the impact of the acquisition on AAR's margin profile and Investor Day targets. Holmes detailed the cost and revenue synergies expected to drive margins to 19–20% over several years. - Michael Ciarmoli (Guggenheim Securities): Questioned how AAR secured MRO Holdings at a favorable valuation and whether labor cost advantages are sustainable. Holmes attributed the deal to long-standing relationships and confidence that labor cost structures will remain stable. - Scott Mikus (Melius Research): Asked if the pace of acquisitions could stretch management bandwidth. Holmes differentiated between the integration challenges of various deals and expressed confidence in the company's ability to manage concurrent integrations. In the coming quarters, our team will focus on (1) the integration progress of MRO Holdings and the realization of cost and revenue synergies, (2) the completion of HAECO Americas restructuring and its impact on segment margins, and (3) sustained growth in parts supply and government solutions. We will also monitor AAR's ability to leverage its expanded footprint to capture additional maintenance and distribution contracts. AAR currently trades at $108.04, down from $115.09 just before the earnings. In the wake of this quarter, is it a buy or sell? The answer lies in our full research report (it's free for active Edge members). ONE MORE THING: Top 6 Stocks for This Week. This market is separating quality stocks from expensive ones fast. AI is taking down whole sectors with no warning. In a rotation this fast, you need more than a list of good companies. Our AI system flagged Palantir before it ran 1,662% between October 2022 and February 2026. AppLovin before it ran 753% between February 2024 and February 2026. Nvidia before it ran 1,178% between January 2023 and February 2026. Each week it produces 6 new names that pass the same tests. Get Our Top 6 Stocks for Free HERE. Stocks that have made our list include now familiar names such as Nvidia (+1,460% between June 2020 and June 2025) as well as under-the-radar businesses like the once-small-cap company Exlservice (+271% between June 2020 and June 2025). Find your next big winner with StockStory today.

Our analysts just identified a stock with the potential to be the next Nvidia. Tell us how you invest and we'll show you why it's our #1 pick. Tap here. - The acquisition of a 65% controlling interest in MRO Holdings creates the world's largest MRO operation, expanding AAR's network from 7 to 12 facilities and servicing nearly 3,000 aircraft annually. - Management views the deal as a 'step change' in financial profile, immediately increasing revenue by approximately 30% and expanding adjusted EBITDA margins by 400 basis points before synergies. - The combination leverages a 'self-reinforcing' platform where increased airframe maintenance volume provides critical data and visibility to drive growth in high-margin parts distribution and software solutions. - Q1 performance was characterized by 24% total sales growth, driven by 31% growth in Parts Supply and strong demand across both commercial and government segments. - Margin expansion in Government Solutions was attributed to a strategic mix shift toward newer, higher-margin programs, which more than offset declines in legacy WASS activity. - The Repair, Engineering and Software segment faced expected short-term dilution due to the ongoing HAECO Americas integration, specifically related to the high-cost Indianapolis facility exit. - Management established a new medium-term adjusted EBITDA margin target of 19% to 20% within 3 to 4 years, incorporating $75 million in identified cost synergies. - Full-year sales growth outlook was raised to the 'low teens' (excluding Legacy Commercial Programs), reflecting strong Q1 performance and durable passenger demand. - The MRO Holdings transaction is expected to be accretive to adjusted EPS in the first full fiscal year following the close, targeted for Q3 fiscal 2027. - Deleveraging is a primary focus, with 100% of MRO Holdings' excess cash flow dedicated to repaying intercompany loans for the first two years post-close to reach a 2x to 2.5x target range. - Future growth assumptions include expanding wide-body maintenance capabilities in the Americas and capturing narrow-body work currently performed in higher-cost European markets. - The transaction structure includes a path to full ownership, with an option to acquire 5% at any time and the remaining 30% in tranches on the second, third, and fourth anniversaries of closing. - AAR will issue approximately $1 billion in equity to fund the deal, including $780 million to MRO Holdings shareholders, resulting in them holding a 12% stake in AAR. - The HAECO Americas integration is expected to be complete by Q4 of the current fiscal year, following the full exit of the Indianapolis facility by the end of the calendar year. - Legacy Commercial Programs contributed $5 million in margin through the liquidation of $24 million in rotable assets, with an estimated run rate of $35 million to $40 million per quarter. One stock. Nvidia-level potential. 30M+ investors trust Moby to find it first. Get the pick. Tap here. - Management confirmed the 'network effect' is central to the deal, as heavy maintenance provides a window into parts demand and aircraft trends that are valuable to OEM distribution partners. - The scale allows AAR to offer a 'one-stop shop' for airlines, cross-selling component repairs and software solutions to customers already in the hangars for heavy maintenance. - The deal adds wide-body capabilities that AAR previously lacked, allowing them to capture work from U.S. customers that is currently performed in Asia. - Management sees an opportunity to attract European narrow-body work to their Central and South American facilities due to a more favorable cost profile. - Management attributed MRO Holdings' 27% EBITDA margins to a combination of labor cost advantages in Central/South America and industry-leading turnaround times. - They expressed confidence that these margins are sustainable, noting they do not anticipate meaningful wage pressure in those specific markets. - John Holmes distinguished this deal from the HAECO turnaround, noting MRO Holdings is already high-performing and requires less intensive restructuring. - Management stated they feel comfortable with the operational spacing of their recent acquisitions as they have occurred across different business segments.

AAR (AIR) just posted first quarter results to August 31, 2026, reporting sales of US$918 million and net income of US$40.1 million, alongside incremental gains in earnings per share from continuing operations. That earnings beat landed against a mixed backdrop for AAR's equity. The share price has fallen 13.6% over the past month and 19.5% over the last quarter, yet the year-to-date share price return of 36.3% and five-year total shareholder return of 240.1% point to momentum that has built over a longer horizon, as investors weigh the recent MRO Holdings acquisition announcement against an already strong multiyear compounding story. Spot opportunities following AAR's earnings move by scanning our curated 32 high quality undervalued stocks that pairs resilient cash flows with stronger balance sheets. The recent slide in AAR's share price sits against stronger reported earnings and a large MRO Holdings deal that could reshape the business mix. Are investors reacting to fundamentals, or are they simply resetting sentiment as expectations shift? Against AAR's last close of $115.09, the most followed narrative pegs fair value at $145.20, implying a sizeable valuation gap that depends on how dependable its aftermarket, software and government businesses prove to be over time. The commercialization of additional MRO capacity in Oklahoma City and Miami, both already sold out before opening, positions AAR to benefit from the expected long-term rise in global air travel and the need for ongoing maintenance of aging aircraft fleets, supporting revenue growth and improved earnings visibility. AAR's growth in new parts Distribution (25%+ organic, significantly above market) aligns with increasing demand for resilient supply chains and more diversified inventory management from both commercial and government customers. See why 10 investors see AAR as 21% undervalued. Result: Fair Value of $145.20 (UNDERVALUED) Still, the narrative around AAR can break if commercial aviation weakens and pressures its parts supply, or if large OEMs pull more aftermarket work in house and squeeze margins. Find out about the key risks to this AAR narrative. Analysts see AAR as undervalued against a fair value of $145.20, yet Simply Wall St's DCF model points the other way. On that cash flow view, the stock trades above an estimated value of $66.35, which raises a simple question for you: Which set of assumptions feels more realistic? For investors who want to unpack how this cash flow based estimate is built and stress test those assumptions against their own, Look into how the SWS DCF model arrives at its fair value. Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out AAR for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 32 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity. Mixed signals around AAR can be confusing, especially when risks and rewards are both on the table and investor opinions are this divided. Act quickly, review the underlying data for yourself, and pressure test both the upside and downside using the 4 key rewards and 1 important warning sign. If the AAR story has sharpened your thinking, do not stop here. Broaden your watchlist with fresh opportunities sourced directly from Simply Wall St screeners built for different goals. - Target income first and review companies with resilient cash flows and yields in the 6 dividend fortresses to see which payouts look most durable. - Hunt for potential value gaps by scanning the 16 high quality undiscovered gems where solid fundamentals have not yet attracted broad market attention. - Prioritize sleep at night potential and sort through the 30 resilient stocks with low risk scores to focus on businesses with more robust risk profiles. This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned. Companies discussed in this article include AIR. Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email [email protected]

- Interested in AAR Corp.? Here are five stocks we like better. - AAR reported strong fiscal 2027 first-quarter results: Sales rose 24% year over year to $918 million, adjusted EPS increased 38% to $1.49, and adjusted EBITDA margin expanded to 12.7%. The company also generated record first-quarter adjusted operating cash flow of $57 million. - The company raised its outlook to low-teens full-year sales growth excluding Legacy Commercial Programs, citing continued demand across its markets and no evidence of weakening Parts Supply or maintenance bookings. - AAR agreed to acquire a 65% controlling interest in MRO Holdings at an implied enterprise value of approximately $4 billion. The deal is expected to increase pro forma revenue by about 30%, boost adjusted EBITDA margins toward 16% before synergies, and be funded with roughly $1 billion of equity and $2.1 billion of debt. - AAR Corp Jets Higher on Robust Demand for Aircraft Components AAR (NYSE:AIR) reported fiscal 2027 first-quarter sales growth, margin expansion and record first-quarter cash flow, while also announcing an agreement to acquire a 65% controlling interest in airframe heavy-maintenance provider MRO Holdings. Chairman, President and CEO John Holmes said the proposed transaction represents a major expansion of AAR's aviation aftermarket platform across parts, repair and software. The company expects the acquisition to close during its fiscal third quarter ending February 2027, subject to customary regulatory approvals. → 5 Scary-Good Stocks With Strong October Catalysts and Breakout Potential - Blackstone's $10 Billion Bet on Property Prices Going Up AAR reported total sales of $918 million, up 24% year over year, including 11% organic growth. Sales to commercial customers rose 28%, while government sales increased 14%. Commercial customers accounted for 73% of quarterly sales and government customers represented 27%. Adjusted EBITDA margin expanded by 100 basis points to 12.7%. Excluding Legacy Commercial Programs, adjusted EBITDA margin was 13.3%, within the company's previously stated three-year target range. Adjusted diluted earnings per share increased 38% from the prior year to $1.49. → Akamai's Anthropic Deal Puts $5.5 Billion Behind Its Edge AI Pivot - 3 mid-caps with RSIs that scream oversold The company generated $57 million of adjusted cash from operations, equal to 48% of adjusted EBITDA, which Holmes described as record first-quarter cash flow. AAR ended the quarter with net leverage of 1.81 times. - Parts Supply: Sales rose 31% to $414.8 million. New-parts distribution grew 23% organically, with commercial distribution up 21% and government distribution up 28%. Adjusted EBITDA margin increased 150 basis points to 15.3%. - Repair, Engineering and Software: Sales increased 31% to $297.5 million, reflecting the HAECO Americas acquisition and organic growth in airframe MRO, component MRO and software. Adjusted EBITDA margin declined 120 basis points to 11.9%, as the HAECO Americas integration remained dilutive. - Government Solutions: Sales increased 4% to $138.8 million, while adjusted EBITDA margin expanded 460 basis points to 15.3%. Growth in Mobility Systems and newer higher-margin programs offset a decline in WOS activity. In Legacy Commercial Programs, AAR liquidated $24 million of rotable assets, contributing roughly $5 million of margin during the quarter. Chief Financial Officer Dylan Wolin said the segment's current run-rate revenue is estimated at $35 million to $40 million per quarter. → 2 Cybersecurity Stocks Breaking Out as AI Continues to Be a Tailwind For the fiscal second quarter, AAR expects sales growth excluding Legacy Commercial Programs of 14% to 16% and adjusted EBITDA margin excluding the segment of 13.0% to 13.4%. For the full fiscal year, the company raised its sales outlook and now expects low-teens growth excluding Legacy Commercial Programs. Both the second-quarter and full-year outlooks exclude the anticipated impact of the MRO Holdings acquisition. Holmes said AAR continues to see strong demand in its markets. During the question-and-answer session, he said the company was not seeing a slowdown in Parts Supply bookings or hearing from maintenance customers that would suggest weakening demand. AAR agreed to acquire a 65% controlling interest in MRO Holdings at an implied enterprise value of about $4 billion. MRO Holdings operates five facilities in El Salvador, Mexico, Colombia and the U.S. and provides heavy maintenance services for narrow-body and select wide-body aircraft. Holmes said approximately 90% of MRO Holdings' sales are generated from U.S. customers. The business recently opened its seventh hangar in El Salvador, which Holmes called the world's largest hangar, and has plans for an eighth hangar at that location. For calendar 2026, MRO Holdings is expected to generate approximately $1 billion of adjusted sales, $285 million of adjusted EBITDA and more than $200 million of adjusted operating cash flow on a pro forma basis, according to AAR. The combined airframe maintenance network would grow from seven to 12 facilities across five countries, with roughly 19 million service hours and nearly 3,000 aircraft maintained annually. Holmes said the expanded network would provide additional opportunities to direct work to AAR's component MRO operations, deepen relationships with OEM distribution partners and generate more data for its software offerings. AAR expects the deal to raise its revenue by approximately 30% on a pro forma basis and increase adjusted EBITDA margin from roughly 12% to 16% before synergies. The company expects the transaction to be accretive to adjusted EPS in the first full fiscal year after closing. AAR expects to finance the acquisition with approximately $1 billion of equity and $2.1 billion of new debt. The equity component includes about $780 million issued to current MRO Holdings shareholders at $135 per share and approximately $230 million through a private investment in public equity, or PIPE, transaction. Current MRO Holdings shareholders are expected to own approximately 12% of AAR shares following the transaction while retaining a 35% stake in MRO Holdings. AAR will have options to increase its ownership over time, including an option to acquire an additional 5% and the remaining 30% in equal tranches on the second, third and fourth anniversaries of the initial closing. The company expects about $75 million of run-rate cost synergies within three to four years, primarily from procurement, selling, general and administrative savings, and shared systems and operating practices. AAR's new medium-term adjusted EBITDA margin target is 19% to 20%, including identified cost synergies but excluding potential revenue synergies. Net leverage is expected to be about 3.6 times at closing, including the full amount of run-rate synergies. AAR expects leverage to decline to roughly three times within 24 months following closing on a realized-synergies basis and return to its 2.0 to 2.5 times target range over the medium term. AAR Corp. is a global provider of aviation services supporting commercial aviation, government and defense customers. The company supplies aircraft parts and equipment, manages inventory and logistics, and provides maintenance, repair and overhaul services for aircraft and components. AAR's offerings include parts distribution, supply-chain management, aircraft maintenance, airframe and component repair, and mobility solutions for government and defense operators. Its services are designed to help airlines, aircraft operators and government agencies maintain fleet readiness and manage aviation assets. Founded in 1955, AAR is headquartered in Wood Dale, Illinois, and serves customers across North America, Europe, Asia and other international markets. This instant news alert was generated by narrative science technology and financial data from MarketBeat in order to provide readers with the fastest reporting and unbiased coverage. Please send any questions or comments about this story to [email protected]. The article "AAR Q1 Earnings Call Highlights" was originally published by MarketBeat. View MarketBeat's top stocks for September 2026.

Aviation aftermarket company AAR Corp (NYSE: AIR) stock declined by 6% as of 2 p.m. today. The company released its first-quarter fiscal year 2027 earnings report today, but that wasn't the reason for the decline. The results were ahead of expectations, and management upgraded its full-year sales expectations from "low double digits" to "low teens" amid "continued strength of demand across our businesses," according to CEO John Holmes on the earnings call. Instead, the market appears concerned about the separate announcement of the acquisition of a controlling interest in MRO Holdings, a maintenance, repair, and overhaul (MRO) company. The company is buying a 65% stake in MRO Holdings for an implied enterprise value of $4 billion, representing "0.7x MRO Holdings' forecasted full calendar year 2026 adjusted EBITDA." That's a reasonable price, given that AAR currently trades at slightly less than its estimated enterprise value (market cap plus net debt) to earnings before interest, taxation, depreciation, and amortization (EBITDA) multiple of less than 11 times EBITDA. Missed Nvidia in 2009? This Rare Signal Is Flashing Again. In 2009, a "Double Down" signal flashed for a little-known chipmaker called Nvidia. For the first time in years, that same "Total Conviction" signal is flashing for a company 1/100th the size of Nvidia. Continue » Moreover, the deal expands AAR's scale by adding airframe heavy-maintenance capability to its existing MRO offerings. It creates opportunities for parts, repair, and software sales while strengthening relationships with suppliers. MRO Holdings has facilities in Central and South America as well as the United States, and the deal helps expand AAR's geographic reach and service offerings for existing clients, while also opening the aerospace company to more wide-body servicing, since AAR is primarily a narrow-body servicing company now. The deal makes good sense and doesn't look expensive, not least for a controlling stake in a complementary company. That said, AAR will issue $2.1 billion in new debt to finance the deal, issue $780 million in equity to MRO Holdings shareholders, and raise $230 million through a private investment in a public equity offering. Issuing debt in a rising-rate environment may raise investor concerns, even if the deal is a good strategic fit. Before you buy stock in Aar, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Aar wasn't one of them. The 10 stocks that made the cut could produce monster returns in the coming years. Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you'd have $373,352!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you'd have $1,406,241!* Now, it's worth noting Stock Advisor's total average return is 933% — a market-crushing outperformance compared to 212% for the S&P 500. Don't miss the latest top 10 list, available with Stock Advisor, and join an investing community built by individual investors for individual investors. See the 10 stocks » *Stock Advisor returns as of September 29, 2026. Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Aar. The Motley Fool has a disclosure policy. Here's Why AAR Corp Stock Slumped Today Despite Excellent Earnings was originally published by The Motley Fool

WOOD DALE, Ill., Sept. 28, 2026 /PRNewswire/ -- AAR CORP. (NYSE: AIR) (the "Company" or "AAR"), a leading parts, repair, and software platform in the aviation aftermarket, reported today financial results for the fiscal year 2027 first quarter ended August 31, 2026. In a separate press release issued today, AAR announced it has entered into a definitive agreement to acquire a controlling interest in MRO Holdings. For additional information on the transaction, please refer to the transaction-specific press release and the investor presentation on the Investors section of AAR's website. Due to this agreement, AAR's previously scheduled earnings conference call has been rescheduled to 7:00 AM CT on Tuesday, September 29, 2026. FIRST QUARTER FISCAL YEAR 2027 HIGHLIGHTS (As compared to Q1 FY2026) - Sales of $918 million; increased 24% - GAAP diluted EPS of $1.00 - Adjusted diluted EPS of $1.49; increased 38% - GAAP Net income of $40 million - Adjusted EBITDA of $117 million; increased 34% - Adjusted EBITDA margin increased from 11.7% to 12.7% "This was a very strong start to our fiscal year," said John M. Holmes, AAR's Chairman, President and CEO. "Our airline customers continue to experience strong demand for air travel, which in turn is driving strong demand for our services, as evidenced by our results this quarter. Total sales were up 24%, and we saw growth across all three core segments. In our Parts Supply segment, total growth of 31% was led by 23% organic growth in new parts Distribution on strength in both Commercial and Government end markets. Our Repair, Engineering & Software (RE&S) segment reported 31% sales growth, driven by our Airframe MRO, Component MRO, and software activities. Government Solutions was up 4% driven by strength in Mobility Systems. "Our sales growth resulted in an adjusted EBITDA increase of 34% in the quarter and adjusted EBITDA margins of 12.7%, up 100 basis points year over year. Total adjusted EBITDA margin from the Parts Supply, RE&S, and Government Solutions segments was 13.3%. "Cash from operations in the quarter was $56 million, helping to further reduce net leverage to 1.81x. "Along with our strong fiscal first quarter earnings, we also announced an agreement to acquire a 65% controlling interest in MRO Holdings. Over the last several years, AAR has taken important steps to reshape our portfolio into an integrated Parts, Repair, and Software aviation aftermarket platform. Through the acquisition of MRO Holdings, AAR will achieve scale that significantly accelerates our strategy as heavy maintenance helps drive revenue to all other areas of the company. Further, the transaction structure allows us to partner with a proven team that brings decades of experience in a strategically important region while also providing the financial flexibility to continue to pursue AAR's broader strategy. This acquisition is highly strategic for AAR and marks a significant step in our long-term growth plan." Holmes concluded, "Our strategy has been successful over the last several years as we have delivered above-market growth and consistent margin expansion. The acquisition of MRO Holdings will further propel this growth and drive a meaningful step-up in our margin profile. The strategy, portfolio, and combination add to the strength and resilience of our aftermarket platform. Given our solid first quarter results and continued demand for our solutions, we remain confident in our ability to deliver another year of strong performance in fiscal 2027." FIRST QUARTER FISCAL YEAR 2027 RESULTS Consolidated first quarter sales increased 24% to $918.0 million, compared to $739.6 million in the same quarter last year. Sales to commercial customers increased 28%, or $147.5 million, primarily due to the acquisition contributions combined with continued above-market Commercial Distribution sales. Sales to government customers increased 14%, or $30.9, over the same period last year, primarily due to increased volumes in our new parts distribution activities. Sales to commercial customers were 73% of consolidated sales, compared to 71% in the prior year quarter. The Company reported net income of $40.1 million, or $1.00 per diluted share. For the first quarter of the prior year, the Company reported net income of $34.4 million, or $0.95 per diluted share. Adjusted diluted earnings per share in the first quarter of fiscal year 2027 were $1.49, compared to $1.08 in the first quarter of the prior year. Selling, general, and administrative expenses were $107.0 million in the current quarter, compared to $71.8 million in the prior year quarter. Acquisition, amortization, and integration expenses were $19.6 million in the quarter, compared to $4.4 million in the prior year quarter. Operating margins were 7.9% in the quarter, compared to 8.8% in the prior year quarter. Adjusted operating margin increased to 10.6% in the current year quarter from 9.7% in the prior year quarter, primarily as a result of growth in our Parts Supply segment and increased profitability in our Government Solutions segment. Net interest expense for the quarter was $16.2 million, compared to $18.5 million last year. Average diluted share count increased from 35.9 million shares in the prior year quarter to 39.9 million shares in the current year quarter. Cash flow provided by operating activities was $55.8 million during the current quarter, compared to $44.9 million of cash used in the prior year quarter. As of August 31, 2026, net debt was $780.5 million and net leverage was 1.81x. SECOND QUARTER AND FULL YEAR FISCAL 2027 GUIDANCE The Company is providing the following guidance for the second quarter and full year fiscal 2027. This guidance does not include any impact of the MRO Holdings acquisition: | Second quarter FY 2027As of September 28, 2026 Sales growth (ex. LCP)1 | 14% - 16% Adjusted EBITDA margin (ex. LCP)2 | 13.0% - 13.4% 1 Reflects total sales growth excluding the Legacy Commercial Programs segment 2 Reflects Adjusted EBITDA margin excluding the Legacy Commercial Programs segment | Full year FY 2027 As of September 28, 2026 | Prior (as of July 28, 2026) Sales growth (ex. LCP)1 | Low teens | Low double-digits to low teens Conference call information On Tuesday, September 29, 2026, at 7:00 a.m. Central Time, AAR will hold a conference call to discuss the quarterly results and the announced acquisition of MRO Holdings. A listen-only webcast and slides can be accessed at https://edge.media-server.com/mmc/p/ogsm2rh7. Participants may join via phone by registering at https://register-conf.media-server.com/register/BIe2a403237161465d99fb8af7cc93b3e8. Once registered, participants will receive a dial-in number and a unique PIN that will allow them to access the call. A replay of the conference call will be available for on-demand listening shortly after the completion of the call at the webcast link and will remain available for approximately one year. The slides are also available on AAR's website at https://www.aarcorp.com/en/investors/. About AAR AAR is a global aerospace and defense aftermarket solutions company with operations in over 20 countries. Headquartered in the Chicago area, AAR supports commercial and government customers through four operating segments: Parts Supply; Repair, Engineering, and Software; and Government Solutions. Additional information can be found at aarcorp.com/. Contact: Chris Tillett – Investor Relations | +1-630-227-5830 | [email protected] This press release contains certain statements relating to future results, which are forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995, which reflect management's expectations about future conditions, including, but not limited to, our second quarter and full year FY 2027 guidance, execution of strategies, continued demand in the commercial and government aviation markets; market position; anticipated activities and benefits related to new or expanding business relationships; expected contributions and synergies related to acquisitions; expansion of capabilities and operational footprint; opportunities for margin improvement through operations, integration activities and other efficiency initiatives; and continued sales and margin growth, earnings performance, debt management, and capital allocation. Forward-looking statements often address our expected future operating and financial performance and financial condition, or targets, goals, commitments, and other business plans, and often may also be identified because they contain words such as "anticipate," "continue," "estimate," "expect," "project," "plan," "potential," "predict," "intend," "believe," "may," "might," "will," "would," "should," "seek," "could," "positions," "likely," "target," "goal," "strategy" or similar expressions and the negatives of those terms. These forward-looking statements are subject to certain risks and uncertainties that may cause actual results to differ materially from historical results or those anticipated, depending on a variety of factors, including: factors that adversely affect the commercial aviation industry; adverse events and negative publicity in the aviation industry; a reduction in sales to the U.S. government and its contractors; cost overruns and losses on fixed-price contracts; nonperformance by subcontractors or suppliers; our ability to manage our operational footprint; a reduction in outsourcing of maintenance and repair activity by airlines; a shortage of skilled personnel or work stoppages; competition from other companies; financial, operational and legal risks arising as a result of operating internationally; the failure to complete, integrate and realize the anticipated benefits of acquisitions, including execution of related operational and financial plans; circumstances associated with divestitures; the inability to recover costs due to fluctuations in market values for aviation products and equipment; cyber or other security threats or disruptions; the need to make significant capital expenditures to keep pace with technological developments in our industry; restrictions on the use of intellectual property and tooling important to our business; the inability to protect the value of our intellectual property; our ability to manage our debt and fund our other liquidity needs; limitations on our ability to access the debt and equity capital markets or to draw down funds under loan agreements; non-compliance with restrictive and financial covenants contained in our debt and loan agreements; changes in or non-compliance with laws and regulations related to federal contractors, the aviation industry, international operations, safety and environmental matters, and the costs of complying with such laws and regulations; exposure to product liability and property claims that may be in excess of our liability insurance coverage; the risk that the MRO Holdings acquisition (the "Acquisition") may not be completed in a timely manner or at all; the failure to satisfy the closing conditions to the Acquisition, including the receipt of required regulatory approvals; the occurrence of any event, change or other circumstance or condition that could give rise to the termination of the share purchase agreement governing the Acquisition, including in certain circumstances requiring the Company to pay a termination fee; the ability of the Company to obtain the necessary financing arrangements; the effect of the announcement or pendency of the Acquisition on the Company's business relationships, operating results and business generally; risks that the Acquisition may disrupt the Company's current business plans and operations; the Company's ability to retain and hire key personnel in light of the Acquisition; risks related to diverting management's attention from the Company's ongoing business operations; unexpected costs, charges or expenses resulting from the Acquisition; potential litigation relating to the Acquisition; the ability of the Company to successfully integrate MRO Holdings and its subsidiaries following the closing of the Acquisition and to achieve the anticipated benefits of the Acquisition, including estimated cost and operational synergies, and the timeline to realize such benefits; the effects of the Acquisition on the Company's earnings, financial condition, net leverage ratio and credit ratings; the risk that the conditions to the potential private placement are not satisfied; the fact that the potential private placement may cause dilution to the Company's existing stockholders; the impact of the Acquisition on the Company's business and future financial condition and operating results, including the ability of the Company or MRO Holdings to repay or prepay indebtedness incurred in connection with the transaction or otherwise; and other factors disclosed in the section entitled "Risk Factors" of the Company's Annual Report on Form 10-K for the fiscal year ended May 31, 2026, as may be updated or supplemented by any subsequent filings with the Securities and Exchange Commission. Should one or more of these risks or uncertainties materialize adversely, or should underlying assumptions or estimates prove incorrect, actual results may vary materially from those described. The Company derives many of its forward-looking statements from its operating budgets and forecasts, which are based on many detailed assumptions. While the Company believes that its assumptions are reasonable, it cautions that it is very difficult to predict the impact of known factors, and it is impossible to anticipate all factors that could affect actual results. These events and uncertainties are difficult or impossible to predict accurately and many are beyond the Company's control. The risks described in these reports are not the only risks the Company faces, as additional risks and uncertainties not currently known or foreseeable or deemed immaterial may materially adversely affect the Company's business, financial condition or results of operations in future periods. All forward-looking statements attributable to the Company, or persons acting on its behalf, are expressly qualified in their entirety by the foregoing cautionary statements. The forward-looking statements included in this press release are made only as of the date hereof. The Company assumes no obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise, except as required by law. AAR CORP. and subsidiaries Condensed consolidated statements of income | (In millions except per share data - unaudited) | Three months ended | August 31, | 2026 | 2025 | Sales | $918.00 | | $739.60 Cost of sales | 741.7 | | 605.9 Gross profit | 176.3 | | 133.7 Selling, general and administrative | 107 | | 71.8 Earnings from joint ventures | 2.8 | | 3 Operating income | 72.1 | | 64.9 Gain related to sale and exit of businesses, net | –– | | 0.7 Interest expense, net | (16.2) | | (18.5) Other expense, net | (0.5) | | (0.1) Income before income tax expense | 55.4 | | 47 Income tax expense | 15.3 | | 12.6 Net income | $40.10 | | $34.40 | | | Earnings per share – Basic | $1.01 | | $0.96 Earnings per share – Diluted | $1.00 | | $0.95 | | | Shares used for earnings per share: | | | Weighted average shares outstanding – Basic | 39.6 | | 35.7 Weighted average shares outstanding – Diluted | 39.9 | | 35.9 AAR CORP. and subsidiaries Condensed consolidated balance sheets(In millions) | August 31,2026 | | May 31,2026 | (unaudited) | | ASSETS | | | Cash and cash equivalents | $ 104.5 | | $ 84.0 Restricted cash | 8.6 | | 23.8 Accounts receivable, net | 436.4 | | 386.8 Contract assets | 147.3 | | 148.4 Inventories, net | 1,008.9 | | 979.0 Other current assets | 134.1 | | 120.1 Total current assets | 1,839.8 | | 1,742.1 Property, plant, and equipment, net | 172.3 | | 166.9 Goodwill and intangible assets, net | 852.7 | | 861.9 Operating lease right-of-use assets, net | 205.3 | | 210.8 Rotable assets, net | 150.4 | | 180.3 Other non-current assets | 206.4 | | 193.9 Total assets | $ 3,426.9 | | $ 3,355.9 | | | LIABILITIES AND EQUITY | | | Accounts payable | $ 337.9 | | $ 295.6 Accrued liabilities | 312.8 | | 317.6 Total current liabilities | 650.7 | | 613.2 Long-term debt | 879.6 | | 893.9 Operating lease liabilities | 98.8 | | 101.1 Other non-current liabilities | 55.4 | | 43.9 Total liabilities | 1,684.5 | | 1,652.1 Equity | 1,742.4 | | 1,703.8 Total liabilities and equity | $ 3,426.9 | | $ 3,355.9 AAR CORP. and subsidiaries Condensed consolidated statements of cash flows(In millions – unaudited) | Three months endedAugust 31, | 2026 | | 2025 Cash flows provided by (used in) operating activities: | | | Net income | $ 40.1 | | $ 34.4 Adjustments to reconcile net income to net cash provided by (used in) operating activities: | | | Depreciation and amortization | 19.6 | | 14.5 Stock-based compensation expense | 7.8 | | 5.3 Changes in certain assets and liabilities: | | | Accounts receivable | (50.5) | | (8.5) Contract assets | 13.3 | | (6.4) Inventories | (41.1) | | (51.8) Other current assets | (15.4) | | 3.5 Rotable assets | 27.5 | | (3.5) Accounts payable and accrued liabilities | 40.8 | | (16.7) Other | 13.7 | | (15.7) Net cash provided by (used in) operating activities | 55.8 | | (44.9) | | | Cash flows used in investing activities: | | | Property, plant, and equipment expenditures | (11.8) | | (8.7) Acquisitions, net of cash acquired | (6.2) | | (11.9) Investment | (7.5) | | –– Hangar expansion activity, net | (0.5) | | (4.2) Other | 0.4 | | 1.0 Net cash used in investing activities | (25.6) | | (23.8) | | | Cash flows provided by (used in) financing activities: | | | Short-term borrowings (repayments) on Revolving Credit Facility, net | (15.0) | | (97.0) Proceeds from long-term borrowings | –– | | 153.0 Financing costs | –– | | (2.5) Stock compensation activity | (9.9) | | (2.4) Net cash provided by (used in) financing activities | (24.9) | | 51.1 Increase (Decrease) in cash, cash equivalents, and restricted cash | 5.3 | | (17.6) Cash, cash equivalents, and restricted cash at beginning of period | 107.8 | | 109.2 Cash, cash equivalents, and restricted cash at end of period | $113.1 | | $ 91.6 AAR CORP. and subsidiaries Third-party sales by segment(In millions - unaudited) | Three months endedAugust 31, | 2026 | | 2025 Parts Supply | $ 414.8 | | $ 317.8 Repair, Engineering, and Software | 297.5 | | 226.4 Government Solutions | 138.8 | | 133.9 Legacy Commercial Programs | 66.9 | | 61.5 | $ 918.0 | | $ 739.6 | Operating income (loss) by segment(In millions - unaudited) | Three months endedAugust 31, | 2026 | | 2025 Parts Supply | $ 55.3 | | $ 40.9 Repair, Engineering, and Software | 16.0 | | 20.0 Government Solutions | 19.1 | | 12.7 Legacy Commercial Programs | 2.9 | | 0.4 | 93.3 | | 74.0 Corporate and other | (21.2) | | (9.1) | $ 72.1 | | $ 64.9 Adjusted net income, adjusted diluted earnings per share, organic sales growth, adjusted operating margin, adjusted cash flow provided by (used in) operating activities, adjusted EBITDA, adjusted EBITDA margin, net debt, and net debt to adjusted EBITDA (net leverage) are "non-GAAP financial measures" as defined in Regulation G of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). We believe these non-GAAP financial measures are relevant and useful for investors as they illustrate our core operating performance, cash flows, and leverage unaffected by the impact of certain items that management does not believe are indicative of our ongoing and core operating activities. When reviewed in conjunction with our GAAP results and the accompanying reconciliations, we believe these non-GAAP financial measures provide additional information that is useful to gain an understanding of the factors and trends affecting our business and provide a means by which to compare our operating performance and leverage against that of other companies in the industries we compete. These non-GAAP measures should be considered as a supplement to, and not as a substitute for, or superior to, the corresponding measures calculated in accordance with GAAP. Our non-GAAP financial measures reflect adjustments for certain items including, but not limited to, the following: - Expenses associated with recent acquisition activity, including professional fees for legal, due diligence, and other acquisition activities, intangible asset amortization, integration costs, non-cash rent expense associated with certain acquired leases classified within operating lease right-of-use assets, bargain purchase gains, and compensation expense related to contingent consideration and retention agreements. - Losses related to our exit from our Indian joint venture, our Landing Gear Overhaul business, and our Composites manufacturing business, including legal fees for the performance guarantee associated with the Composites' A220 aircraft contract. Adjusted EBITDA is net income before interest income (expense), other income (expense), income taxes, depreciation and amortization, stock-based compensation, and items of an unusual nature including but not limited to business divestitures and acquisitions, acquisition, integration, and amortization expenses from recent acquisition activity (see detailed description above), headquarters relocation activity, product line exits, and severance charges. Although our non-GAAP financial measures exclude amortization expense associated with acquired intangible assets, they do not exclude the sales generated by the acquired businesses or otherwise attributable to those intangible assets. The Company is not providing a reconciliation of forward-looking financial measures to the most directly comparable forward-looking GAAP measure because the information is not available without unreasonable effort. This is due to the inherent difficulty of forecasting the timing and amount of certain items, such as, but not limited to, unusual gains and losses, the ultimate outcome of pending litigation, the impact and timing of potential acquisitions and divestitures, and other structural changes or their probable significance. Each of the adjustments has not occurred, are out of the Company's control and/or cannot be reasonably predicted. For this reason, the Company is unable to address the probable significance of the unavailable information. Pursuant to the requirements of Regulation G of the Exchange Act, we are providing the following tables that reconcile the above-mentioned non-GAAP financial measures to the most directly comparable GAAP financial measures: Adjusted net income(In millions - unaudited) | Three months endedAugust 31, | 2026 | 2025 Net income | $ 40.1 | $ 34.4 Acquisition, integration, and amortization expenses | 24.9 | 6.4 Gain related to sale of businesses, net | –– | (0.7) Severance charges | –– | 1.0 Government COVID-related subsidy liability reversal | –– | (0.7) Tax effect on adjustments (a) | (5.0) | (1.4) Adjusted net income | $ 60.0 | $ 39.0 (a) Calculation uses estimated statutory tax rates on non-GAAP adjustments except for the impact from certain acquisition-related non-deductible items. Adjusted diluted earnings per share(unaudited) | Three months endedAugust 31, | 2026 | 2025 Diluted earnings per share | $ 1.00 | $ 0.95 Acquisition, integration, and amortization expenses | 0.62 | 0.18 Gain related to sale of businesses, net | –– | (0.02) Severance charges | –– | 0.03 Government COVID-related subsidy liability reversal | –– | (0.02) Tax effect on adjustments (a) | (0.13) | (0.04) Adjusted diluted earnings per share | $ 1.49 | $ 1.08 (a) Calculation uses estimated statutory tax rates on non-GAAP adjustments except for the impact from certain acquisition-related non-deductible items. Adjusted operating margin(In millions - unaudited) | Three months ended | August 31, 2026 | May 31, 2026 | August 31, 2025 Operating income | $ 72.1 | $ 80.1 | $64.9 Acquisition, integration, and amortization expenses | 24.9 | 17.0 | 6.4 Severance charges | –– | –– | 1.0 Government COVID-related subsidy, net | –– | –– | (0.7) Adjusted operating income | $ 97.0 | $ 98.0 | $ 71.6 | | | Operating margin | 7.9 % | 8.6 % | 8.8 % Adjusted operating margin | 10.6 % | 10.6 % | 9.7 % Organic sales growth for the three months ended August 31, 2026(unaudited) | | GAAP sales growth | 24.1 % | Impact of acquisitions within the last twelve months | (13.3) | Organic sales growth | 10.8 % | Adjusted cash flows provided by (used in) operating activities(In millions - unaudited) | Three months endedAugust 31, | 2026 | 2025 Cash flows provided by (used in) operating activities | $ 55.8 | $ (44.9) Amounts outstanding on accounts receivable financing program: | | Beginning of period | 25.7 | 21.3 End of period | (25.0) | (24.3) Adjusted cash flows provided by (used in) operating activities | $ 56.5 | $ (47.9) Adjusted EBITDA(In millions - unaudited) | Three months endedAugust 31, | | Year endedMay 31, | | 2026 | 2025 | | 2026 | Net income | $ 40.1 | $ 34.4 | | $ 187.7 | Income tax expense | 15.3 | 12.6 | | 58.2 | Other expense, net | 0.5 | 0.1 | | 2.1 | Interest expense, net | 16.2 | 18.5 | | 70.5 | Depreciation and amortization | 18.8 | 13.8 | | 72.1 | Acquisition and integration expenses | 17.8 | 2.4 | | 28.2 | Gains related to sale and exit of business/joint venture, net | –– | (0.7) | | (1.4) | Bargain purchase gain | –– | –– | | (29.5) | Gain on sale of headquarters building | –– | –– | | (9.8) | Impairment charge related to product line exit | –– | –– | | 4.9 | Severance charges | –– | 1.0 | | 1.0 | Government COVID-related subsidy, net | –– | (0.7) | | (0.7) | Stock-based compensation | 7.8 | 5.3 | | 17.8 | Adjusted EBITDA | $ 116.5 | $ 86.7 | | $ 401.1 | | | | | | Net income margin | 4.4 % | 4.7 % | | | Adjusted EBITDA margin | 12.7 % | 11.7 % | | | | | | | | Net debt(In millions – unaudited) | August 31, 2026 | | August 31, 2025 Total debt | $ 885.0 | | $ 1,030.0 Less: Cash and cash equivalents | (104.5) | | (80.0) Net debt | $ 780.5 | | $ 950.0 Net debt to adjusted EBITDA(In millions - unaudited) | Adjusted EBITDA for the year ended May 31, 2026 | $ 401.1 Less: Adjusted EBITDA for the three months ended August 31, 2025 | (86.7) Plus: Adjusted EBITDA for the three months ended August 31, 2026 | 116.5 Adjusted EBITDA for the twelve months ended August 31, 2026 | $ 430.9 Net debt at August 31, 2026 | $ 780.5 Net debt to Adjusted EBITDA | 1.81 View original content to download multimedia:https://www.prnewswire.com/news-releases/aar-reports-first-quarter-fiscal-year-2027-results-302891946.html